Daily Archives: August 29, 2012

Moody’s: Bolivia’s New Foreign Exchange Tax Is Credit Negative for Banks

From WSJ, by Arran Scott

SINGAPORE–A move by Bolivia to tax foreign exchange transactions to enforce de-dollarization policies will undercut the credit health of local banks, Moody’s Investors Service said Monday.

The Bolivian House of Representatives last Tuesday passed a bill to tax all foreign exchange transactions with a 0.7% levy for 36 months, Moody’s said. The ratings company said it expects the Senate to pass the bill, making it law.

The Bolivian House of Representatives last Tuesday passed a bill to tax all foreign exchange transactions with a 0.7% levy for 36 months, Moody’s said. The ratings company said it expects the Senate to pass the bill, making it law.

“Its passage would be credit negative for Bolivian banks because it will reduce income in foreign exchange operations as the tax reduces net spreads,” Moody’s said in a weekly credit report.

The measure excludes forex transactions by the Central Bank of Bolivia, Moody’s said.


An article written by Aline Quispe from La Razon follows:

Moody’s said that the dollar rate will affect three banks

The Moody’s Agency credit rating yesterday [8/27/12] warned that the tax to the sale of foreign currency (IVME) will affect revenues obtained by Ganadero, BISA and Nacional de Bolivia banks. Indicated that the application of the tax “will be negative” for the Banking system.

Revealed by a report issued by Moody’s Investors Service, from New York, that “the new tribute by the selling of foreign currency will be negative” for the Banking system. On August 21, La Razon reported the draft law amendments to the General budget of the State (PGE) 2012 expected to apply from this year a new tax burden to entities of the financial system for selling foreign currency.

The tribute is good for the next three years and national financial institutions and bureaus of exchange will pay a tax of 0.70% for each taxable operation. For example, if a customer purchases $ 100, financial institutions will pay a tax of $ 0.70 dollars.

The report of the rating indicates that the draft law referred to in the new tribute aims to set new “de-dollarization policies” and that this will be “completely negative for the Bolivian banking” because it will reduce revenues in foreign currency operations as the tax decreases net earnings.

The Moody’s Agency stated that, according to its level of activity in the foreign exchange market, provided by Ganadero, BISA and Nacional de Bolivia (BNB) banks “will be the most affected by this new tax”. In this regard, Banco BISA informed La Razon “we are waiting for the approval of the Decree and respective regulations”.

This newspaper sent two questionnaires to Ganadero and Nacional de Bolivia to know if the application of the tax will affect them, but those requests were not answered until the close of this edition.

Moody’s detailed BISA gets 22.4% of its revenues from the purchase and sale of foreign currency; the Ganadero, 20.3%; and the BNB, 17.2%. Noted that the operations of the banks for the purchase and sale of foreign currency “are in large part related to import and export operations, and, to a lesser extent, with remittances”. [I believe remittances are a MAJOR source for Bolivian households that receive foreign currency from their relatives working hard abroad as existing economic policies do not generate jobs inside Bolivia. So, these Bolivian families are going to pay for this governmental decision.]

This Sunday, economy Minister Luis Arce, reiterated that the new tribute is intended to deepen the policy of bolivianization, that drives the Government since 2006, and redistribute income away from [the private] banking system.

The authority pointed out that there is an existing standard which provides that financial institutions and bureaus of exchange may not charge more than Bs6.97 per dollar sold or pay less than Bs6.85 on every purchase. The Minister said that the Treasury General of the nation (TGN) will participate with the new measure of a small “portion”, of a “business so lucrative” as it is the sale and purchase of foreign exchange.

The rating agency noted that the Bolivian banking will get “profits of the transactions in foreign currency in accordance with the local demand for the buying and selling of dollars”, with the new tax instead of paying a fee and commissions.

In 2011, Bank profits by buying and selling dollars reached us $83 million. The rating agency explained that the figure is equivalent to 11.6% of gross operating income of the entire financial system. “Therefore, the measure will reduce a significant source of income, putting pressure on the profitability” of the banking system.

Application of an aliquot is of concern


The Moody’s Investors Service Agency credit rating indicated, through a report, that it is expected that the financial system is able to absorb the effects of this tax. “We are concerned the tribute that is proposed for the purchase and sale of foreign currency, high taxes on the profits of the banks and the additional constraints in the allocation of assets that could affect the profitability of the financial system,” said.

New tribute increases the uncertainty in economy

The credit rating Moody’s indicated that the new tribute to the financial system and bureaus of exchange by the sale of dollars “increase uncertainty” in an economy partially dollarized and that this could be against the policy of bolivianization.

“(The arrangement) increases the uncertainty in an economy that is still partially dollarized and that could work against the intention of the Government of de-dollarized it”, Moody’s Investors Service said in a report issued from its headquarters in New York (United States).

However, the international rating agency expects that the new tax burden “will not interrupt Bolivia’s foreign exchange market”. Moody’s recalled that depositors were shown to be “sensitive to the measures implemented by the Government” and that “there have been withdrawals of deposits” in the national financial system.